SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 25, 1997
Commission File No. 1-5590
Fluke Corporation
(Exact name of registrant as specified in its charter)
Washington
(State of incorporation of organization)
91 - 0606624
(I.R.S. Employer Identification No.)
6920 Seaway Boulevard Everett, Washington 98203
(Address of principal executive offices) (Zip Code)
(425) 347-6100
(Registrant's telephone number, including area code)
(Former name if changed since last report)
(Former fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
As of August 22, 1997, there were 9,127,745 shares of $0.25 par value
common stock outstanding.
INDEX
Fluke Corporation
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of July 25, 1997 and
April 25, 1997
Consolidated Statements of Income for the quarters ended
July 25, 1997 and July 26, 1996
Consolidated Statements of Cash Flows for the quarters ended
July 25, 1997 and July 26, 1996
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
(b) Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
CONSOLIDATED BALANCE SHEETS
Fluke Corporation and Subsidiaries
unaudited (in thousands except shares)
<CAPTION>
July 25, 1997 April 25, 1997
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 37,244 $ 40,916
Accounts receivable, less allowances 74,070 80,689
Inventories 55,624 54,522
Deferred income taxes 16,484 16,968
Prepaid expenses and other current assets 20,656 16,185
Total Current Assets 204,078 209,280
Property, Plant and Equipment
Land 5,236 5,236
Buildings 47,512 47,414
Machinery and equipment 117,081 115,022
Construction in progress 8,783 5,634
Less accumulated depreciation (115,116) (113,660)
Net Property, Plant and Equipment 63,496 59,646
Goodwill and Other Intangibles 10,838 11,876
Other Assets 11,636 11,558
Total Assets $ 290,048 $ 292,360
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 16,052 $ 16,504
Accrued liabilities 28,279 35,350
Accrued restructuring 10,417 11,894
Income taxes payable 1,380 1,584
Current maturities of long-term obligations
and short term debt 1,479 1,145
Total Current Liabilities 57,607 66,477
Long-term Obligations 509 563
Deferred Income Taxes 10,083 10,178
Other Liabilities 13,196 12,203
Total Liabilities 81,395 89,421
Stockholders' Equity
Common stock 2,281 2,262
Additional paid-in capital 72,788 69,490
Retained earnings 140,981 135,998
Cumulative translation adjustment (7,397) (4,811)
Total Stockholders' Equity 208,653 202,939
Total Liabilities and Stockholders' Equity $ 290,048 $ 292,360
Total Shares Outstanding 9,125,189 9,046,480
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
Fluke Corporation and Subsidiaries
unaudited (in thousands except shares and per share amounts)
<CAPTION>
QUARTER ENDED
July 25, 1997 July 26,1996
<S> <C> <C>
Revenues $ 105,580 $ 101,154
Cost of Goods Sold 49,388 47,194
Gross Margin 56,192 53,960
Operating Expenses
Marketing and administrative 36,060 35,490
Research and development 10,398 10,305
Total Operating Expenses 46,458 45,795
Operating Income 9,734 8,165
Non-Operating Expenses (Income)
Interest Expense 31 110
Other (578) (438)
Total Non-Operating
Expenses (Income) (547) (328)
Income Before Income Taxes 10,281 8,493
Provision for Income Taxes 3,701 2,934
Net Income $ 6,580 $ 5,559
Earnings Per Share $ 0.69 $ 0.62
Net Income as a Percentage of Revenues 6.2% 5.5%
Average Shares and Share
Equivalents Outstanding 9,580,103 8,943,582
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fluke Corporation and Subsidiaries
unaudited (in thousands)
<CAPTION>
QUARTER ENDED
July 25, 1997 July 26,1996
<S> <C> <C>
Operating Activities
Net Income $ 6,580 $ 5,559
Items not affecting cash:
Depreciation and amortization 3,861 3,524
Deferred income tax 169 (1,202)
Other items not affecting cash 39 (258)
Net change in:
Accounts receivable 5,529 4,451
Inventories (2,308) 908
Prepaid expenses (4,625) 456
Accounts payable (110) (480)
Accrued liabilities (5,361) (8,033)
Accrued liabilities related to restructuring (1,477) ---
Income taxes payable 596 790
Other assets and liabilities 1,059 (164)
Net Cash Provided By Operating Activities 3,952 5,551
Investing Activities
Additions to property, plant and equipment (7,893) (2,767)
Proceeds from disposal of property, plant
and equipment 40 10
Net Cash Used By Investing Activities (7,853) (2,757)
Financing Activities
Proceeds from short-term obligations 323 ---
Proceeds from stock options 1,796 171
Payments on long-term obligations (44) (1,246)
Cash dividends paid (1,448) (1,795)
Net Cash Used By Financing Activities 627 (2,870)
Effect of Foreign Currency Exchange Rates on
Cash and Cash Equivalents (398) 136
Net Increase (Decrease) In Cash and Cash
Equivalents (3,672) 60
Cash and Cash Equivalents at Beginning of Period 40,916 36,631
Cash and Cash Equivalents at End of Period $37,244 $36,691
Supplemental Cash Flow Information
Income Taxes Paid $ 2,280 $ 1,253
Interest Paid $ 31 $ 111
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fluke Corporation and Subsidiaries
1. The accompanying unaudited Consolidated Financial Statements do not
purport to be full presentations and do not include all information and
disclosures required for fair presentation by generally accepted
accounting principles, but rather include only that information required
by the instructions to Form 10-Q. However, in the opinion of
management, the accompanying unaudited Consolidated Financial Statements
contain all adjustments (consisting of normal recurring accruals)
considered necessary to present fairly the Consolidated Balance Sheets
of the Company at July 25, 1997 and April 25, 1997 and the Consolidated
Statements of Income and the Statements of Cash Flows for the quarters
ended July 25, 1997 and July 26, 1996.
2. The results of operations for the quarter ended July 25, 1997 are not
necessarily indicative of the results to be expected for the full year.
3. On June 17, 1997, the Company's Board of Directors declared a 17.5
cents per share quarterly cash dividend for stockholders of record on
July 25, 1997 which was paid on August 15, 1997. In the first quarter of
fiscal 1997, the Company declared a cash dividend of 16 cents per share
before restatement for the merger with Forte Networks, Inc. After
restatement for dividends paid by Forte, dividends of 23 cents per share
were declared.
4. The components of inventories are as follows:
<TABLE>
(in thousands)
<CAPTION>
July 25, 1997 April 25, 1997
<S> <C> <C>
Finished Goods $17,780 $17,789
Work-in-Process 11,150 11,160
Purchased Parts and Materials 26,694 25,573
Total Inventories $55,624 $54,522
</TABLE>
5. In June 1997 the FASB issued Statement 130, "Reporting Comprehensive
Income" and Statement 131, "Disclosures about Segments of an Enterprise
and Related Information". Both Statement 130 and Statement 131 are
effective for fiscal years beginning after December 15, 1997. The
Company is required to adopt the provisions of Statement 130 and Statement
131 for the fiscal year ended April 30, 1999. The Company is evaluating
the requirements and impact of Statement 130 and Statement 131.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Fluke Corporation and Subsidiaries
RESULTS OF OPERATIONS
Revenues of $106 million for the quarter ended July 25, 1997 were 4
percent higher than the $101 million of revenues for the quarter ended
July 26, 1996. There was a 4 percent negative impact on revenues caused
by the strong United States (U.S.) dollar relative to non-U.S.
currencies primarily in Europe and Japan. Revenues from network test
tools increased significantly, but did not meet the Company's growth
expectations in the U.S. Three products introduced in 1997, the
OneTouch Network Assistant, DSP-2000 CableAnalyzer, and the Fluke 123
Industrial ScopeMeter led the worldwide growth.
The Company entered into an agreement with Hewlett-Packard Company (HP)
in April 1997. Under this agreement the Company is selling certain HP
products in the U.S. and HP is selling selected Fluke products in the
U.S. Products sold under this agreement and growth in revenues from
network test tools, spurred an overall 10 percent increase in U.S.
revenues. Despite the growth in network test tool revenues, the U.S.
manufacturer's representatives in this market did not meet the Company's
expectations for the quarter. As a result, the Company is expanding the
number of the manufacturer's representatives selling these products. In
addition, the Company is certifying all its representatives in the
network test tool market to insure they have the necessary technical
skills and product knowledge to meet future expectations.
The local currency shipments in Europe increased by 5 percent. The
United Kingdom and Belgium showed the highest growth. European
currencies weakened during the quarter compared to the U.S. dollar,
negatively impacting European revenues from all countries except the
United Kingdom. The result was a net decrease of 4 percent in U.S.
dollar revenues from Europe.
The Intercon region, all countries outside the U.S. and Western Europe,
grew 7 percent compared to the same period a year ago. Revenues in
Latin America, with Columbia, Mexico and Brazil leading the way,
increased 42 percent over the first quarter of 1997. Revenues in Canada
increased 33 percent and revenues in Singapore were up 31 percent.
Revenues in Japan increased 12 percent in local currency with strong
sales of network test tools. However, the negative impact of the strong
U.S. dollar compared to the Japanese yen, resulted in a net increase in
U.S. dollar revenues of 4 percent.
Operating income of $9.7 million increased by 19 percent compared to the
same quarter last year as the Company continues to control the growth of
operating expenses. Operating expenses of $46 million, benefiting from
the strong U.S. dollar effect on local currency expenditures in Europe
and Japan, increased only 1 percent. Cost of goods sold increased at
approximately the same rate as revenues.
The effective annual tax rate was 36.0 percent in the quarter ended July
25, 1997 compared to 34.5 percent in the quarter ended July 26, 1996.
Last year's rate was lower as a result of the merger with Forte
Networks, Inc.(Forte) on June 26, 1996. Forte was a sub-chapter S
corporation and therefore did not pay U.S. income tax. The U.S. income
tax was paid by its shareholders. Therefore, when reporting the
financial results of the merged companies no tax expense was recognized
on the income generated by Forte in most of the quarter ended July 26,
1996, yielding a lower effective tax rate for the combined companies.
LIQUIDITY AND CAPITAL RESOURCES
The cash position of the Company remains strong. The Company made
capital expenditures of $8 million in the quarter ended July 25, 1997
compared to $3 million in the quarter ended July 26, 1996. About half
the increase was due to an investment in new management information
software and hardware. During the next two years the Company will be
installing new information systems throughout its worldwide operations.
During the next 3 quarters, the Company expects capital expenditures to
be running higher than the historical average, primarily for
improvements in its manufacturing capabilities and the new management
information system. The Company expects to fund these expenditures and
other working capital requirements through cash generated from normal
operations.
The Company declared a cash dividend on June 17, 1997 payable to
stockholders of record on July 25, 1997. The dividend of 17.5 cents per
share represents a 1.5 cents per share increase over last year.
The current ratio was 3.5 at July 25, 1997 compared to 3.1 at April 25,
1997. The improvement in the quarter ended July 25, 1997 was a result
of paying down current liabilities.
The Company has a program to hedge some of its foreign exchange exposure
using forward exchange contracts. The contracts cannot be speculative
and are limited to actual currency risk. The Company does not currently
use any other form of derivatives in managing its financial risk.
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fiscal
quarter ended July 25, 1997 for which this report was filed.
SIGNATURES
Fluke Corporation and Subsidiaries
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLUKE CORPORATION
Registrant
September 8, 1997 /s/Elizabeth J. Huebner
Date Elizabeth J. Huebner
Vice President,
Chief Financial Officer
<TABLE>
Exhibit 11 COMPUTATION OF EARNINGS PER SHARE
Fluke Corporation and Subsidiaries
<CAPTION> QUARTER ENDED
July 25, 1997 July 26, 1996
<C> <C>
<S>
Shares issued at beginning
of period 9,046,480 8,652,955
Shares outstanding at
beginning of period 9,046,480 8,652,955
Net issuance of shares
under employee stock plans,
weighted average 35,081 13,549
Weighted average common
shares outstanding 9,081,561 8,666,504
Assumed exercise of stock
options, weighted average
of incremental shares 498,542 277,078
Average shares and
share equivalents
outstanding 9,580,103 8,943,582
Earnings per share $ 0.69 $ 0.62
Net Income $6,580,000 $5,559,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Income Statement and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-24-1998<F1>
<PERIOD-START> APR-26-1997
<PERIOD-END> JUL-25-1997
<CASH> 37,244
<SECURITIES> 0
<RECEIVABLES> 74,820
<ALLOWANCES> 750
<INVENTORY> 55,624
<CURRENT-ASSETS> 204,078
<PP&E> 178,612
<DEPRECIATION> 115,116
<TOTAL-ASSETS> 290,048
<CURRENT-LIABILITIES> 57,607
<BONDS> 0
0
0
<COMMON> 2,281
<OTHER-SE> 206,372
<TOTAL-LIABILITY-AND-EQUITY> 290,048
<SALES> 105,580
<TOTAL-REVENUES> 105,580
<CGS> 49,388
<TOTAL-COSTS> 46,458
<OTHER-EXPENSES> (547)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 10,281
<INCOME-TAX> 3,701
<INCOME-CONTINUING> 6,580
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,580
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
<FN>
<F1>All numbers in this column are in thousands except per share
amounts.
</FN>
</TABLE>
